Biox suspends Sombra plant upgrades until shareholder vote

By Ron Kotrba | August 10, 2017

Biox Corp.’s management and board of directors announced they have decided to postpone completion of upgrades at its Sombra, Ontario, biodiesel production facility pending a review of the circumstances after the upcoming shareholder vote Sept. 7. Last month, Biox signed an agreement to transition from being publicly traded to a private company. Under the agreement, FP Resources Ltd. and CFFI Ventures Inc. would acquire all the outstanding common shares not already owned by the two companies for the cash equivalent of $1.23 per share. The purchase, which must be approved by shareholders at a special meeting to be held Sept. 7, would be executed through a wholly owned subsidiary of CFFI Ventures, 10293547 Canada Ltd., with the sanction of a court-approved plan of arrangement under the Canada Business Corporations Act. Biox’s board of directors are recommending that shareholders vote in favor of the purchase.

“Given the combination of a narrow margin environment, constrained cash flows from operations and the level of uncertainty in the U.S. biodiesel market, the company felt the best decision was to defer the balance of the capital spend and the commissioning plans,” the company stated in a press release on its quarterly financials. “The facility was purchased based on the strength of the Ontario Greener Diesel program and the company remains committed to having the facility in full operation in time for the main blending season in 2018.”

Biox purchased the 50 million liter (13.2 million gallon) nameplate capacity biodiesel facility in Sombra, Ontario, from Methes Energies Canada Inc. in 2016 for USD$4.5 million. This spring, Biox announced it is working with Forge Hydrocarbons Corp. to lease Forge up to four acres at the Sombra site for construction of a 25 MMly renewable diesel plant using Forge’s technology. 

At June 30, the end of Biox’s third quarter, the company had more than 46 million common shares outstanding, as well as outstanding options to purchase up to 1.43 million common shares and outstanding warrants to purchase up to 4.4 million more shares.

Sales were $19 million and $52.8 million for the three-month (Q3 2017) and the nine-month (YTD 2017) periods ended June 30, respectively, compared to $39.7 million and $86.8 million for the corresponding periods in fiscal 2016. The change in each period is primarily due to the sale of substantial volumes of third-party product last fiscal year. The change in the YTD period is also partially due to the recognition of US$6.7 million of refundable tax credits from customers and the U.S. IRS related to the retroactive reinstatement of the U.S. biodiesel tax incentive in YTD 2016.

Biox sold 16.1 million liters and 45 million liters of biodiesel in Q3 2017 and YTD 2017, respectively, compared to 34.8 million liters and 78.2 million liters in the corresponding periods in fiscal 2016. The changes in sales and volume sold for both Q3 2017 and YTD 2017 are primarily due to lower sales of third-party product. The company sold less than 200,000 and 300,000 liters of third-party product in Q3 2017 and YTD periods, respectively, compared to 22.1 million liters and 32.8 million liters of third-party product sales in the corresponding periods in fiscal 2016.

Operating loss was $1.8 million and $6.5 million for Q3 2017 and YTD 2017, respectively, compared to operating income of $100,000 and $1.5 million for the corresponding periods in fiscal 2016. The change in the quarterly period is primarily due to the expiration of the U.S. biodiesel tax incentive, which resulted in lower relative sales revenue in Q3 2017. The change in the YTD period is primarily a result of the collection of $9.2 million in refundable tax credits, referenced above, related to the reinstatement of the U.S. biodiesel tax incentive in YTD 2016. There was no such revenue recognized in the corresponding period in fiscal 2017.

“Our Hamilton facility continues to operate at the top end of our targeted range and the Houston facility continued to perform well throughout the quarter,” said CEO Alan Rickard. In a joint venture, Biox and World Energy purchased the former Green Earth Fuels facility, a 90 MMgy biodiesel production plant in Houston.

“Demand for our low carbon intensity biodiesel remains strong in Ontario due to the Greener Diesel program,” Rickard continued. “However, the U.S. market remains challenging due to tighter margins and uncertainty related to the U.S. biodiesel tax incentive and the 2018 Renewable Volume Obligation. We encourage all shareholders to vote their shares at the upcoming special meeting of shareholders that will consider the offer from a principal shareholder to acquire all outstanding shares of the company. We intend to file the Management Information Circular in the coming days for the meeting, which is scheduled for Sept. 7. The board of directors has recommended shareholders vote in favor of the offer.”


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